Banks Improving Profitability with Loan 'Solid Performance' and Rising NIM...

Household Loan Decrease Offset by Corporate Loan Increase
NIM Also UP as Benchmark Interest Rate Rises

[Asia Economy Reporter Minwoo Lee] The profitability of financial holding companies is expected to improve in the first quarter of this year. This is attributed to a greater-than-expected increase in loans and effective management of the net interest margin (NIM).

On the 16th, Shinhan Financial Investment provided this analysis. Although household loans decreased, corporate loans increased, maintaining the overall growth trend in household loans.

According to the Bank of Korea's Financial Market Trends report for March 2022, as of the end of last month, the outstanding household loans in the banking sector stood at 1,059 trillion won, down by 1 trillion won from the previous month. This marks the largest decline since related statistics began in 2004. It is also the first time household loans have decreased for four consecutive months. Despite the reduction in outstanding household loans and minimal new loan issuance, corporate loans increased significantly, leading to an estimated loan growth of around 1% compared to the previous quarter.

The net interest margin (NIM) is expected to continue its upward trend. This is due to the combined effects of the base interest rate hike and profitability management. It is projected to rise by approximately 3 to 6 basis points (bp; 1bp = 0.01%) compared to the previous quarter.

However, variations in NIM growth are anticipated across companies. This is attributed to factors such as the one-time interest recovery effect in the previous quarter and the proportion of fixed-rate products. Woori Financial, Industrial Bank of Korea, and DGB Financial are expected to see the largest increases in NIM, rising by 5 to 7 bp compared to the previous quarter. Shinhan Financial Group is also forecasted to increase significantly by more than 6 bp. Conversely, Hana Financial and JB Financial, which experienced large one-time delinquent interest recoveries in the previous quarter, are expected to see NIM increases limited to 2 bp and 0 bp respectively due to base effects.

Bank net profit growth is also expected to continue. Kim Suhyun, a researcher at Shinhan Financial Investment, stated, "Despite sluggish non-interest income due to deteriorating capital market conditions (weakness in listed securities and securities subsidiaries), banks' strong performance will continue," adding, "From the second quarter, household loan regulations will be partially eased following the new government’s inauguration, leading to a shift toward growth in household credit." Furthermore, with high growth expected in loans focused on small and medium-sized enterprises, total loan growth is also anticipated to recover from the second quarter.

Recently, the Bank of Korea’s 25 bp base rate hike is expected to impact the banking sector’s annual NIM by around 3 bp. Researcher Kim noted, "The effects of the January and April base rate hikes will also be reflected in the second quarter," and forecasted, "An earnings growth trend will continue in the second quarter."

This content was produced with the assistance of AI translation services.